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Transforming the power system

Transforming the power system

12 July 2018

July update from Anne Pearson CE

Here we are at the start of a new financial year fully focussed on delivering the transition required for the power system in co-operation with other energy sector bodies as well as government, the industry and consumers. The force of transformational change in the market today can’t be underestimated. It’s driving the need for timely, pragmatic and co-ordinated solutions to enable outcomes that meet the needs of energy consumers. And we’ve seen that again this week in the ACCC’s recommendations to government from its electricity supply and prices inquiry.

Fundamental step changes in power system technologies are accelerating across the market – raising new opportunities for the entire community along with new risks for the reliability and security of electricity supply. The Commission is developing new regulatory frameworks for this changing environment to make sure consumers are protected and the cost of transition is kept as low as possible.

Later this month we will be releasing the next tranche of work in our reliability and security workstream. There will be a series of releases, setting out our recommendations and next steps for how the regulatory frameworks can be developed to help maintain and enhance:

Power system security, so that the system operator and market participants can within its technical operating limits – specifically in the area of frequency control; and

Reliability so that the there is sufficient capacity available when and where it is needed in key areas including information provision and demand response.

Improving power system security remains a priority for us, and is important for building confidence that the system will be able to respond securely to the operational dynamics brought about by the changing generation mix. There will be more from our frequency control frameworks review before the end of the month.

We have also received a request for advice from Minister Frydenberg. It asks us to investigate whether generators may be using their power in concentrated markets to force up prices. Our report is due to the Minister by 30 September this year.

This analysis will be done against the backdrop of the Commission’s recent work in relation to attempts by generators to game the electricity trading system. We will also be having regard to work undertaken by the ACCC. As part of this work we will critically examining the effectiveness of new rules that started in July 2016 to stop generators making false or misleading bids when they sell electricity into the wholesale market.

It’s always important to test rules to check they are continuing to work as the world changes. Acceptable rebidding can promote efficient outcomes for consumers by enabling electricity supply to adjust to changed market conditions. But of course we must have strong accountabilities around how rebids are made. The 2016 bidding in good faith rule made generators keep records of the reasons for decisions to rebid at the last minute in response to changing market conditions so these could be scrutinised by the Australian Energy Regulator. It also gave the AER better tools to manage compliance with bidding rules and take enforcement action in cases of false or misleading rebidding.

People interested in the body of work designed to stop market participants gaming the system might also be interested to read more about a fundamental change to the market design that the Commission made in November 2017 to change the financial settlement period for the wholesale electricity spot market from 30 minutes to five minutes.

Five minute settlement provides a better price signal for investment in fast response technologies, such as batteries, new generation gas peaker plants and demand response. It aligns operational dispatch and financial settlement at five minutes – supporting more efficient bidding, operational decisions and investment.
The new rule starts on 1 July 2021. Industry is getting ready for this major change which involves spot and contract markets, metering and information technology systems.